Companies act 2013 current case study - companies act 2013 notes

Posted on 22-11-2015        By ADMIN

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Penalty of ? 2.00 crores imposed by SEBI on NDTV for not disclosing the information pertaining to the tax demand of ? 450.00 crores since non disclosure is violation of clause 36 of listing agreement.

The penalty was levied, since the company had failed to disclose to stock exchanges a tax demand of Rs. 4500 million raised by the Income Tax Department in terms of clause 36 of the equity listing agreement.

The disclosure was submitted by the company to NSE & BSE and that too not voluntarily, but in response to the clarifications sought by the stock exchanges. In view of the above, it was alleged that the company, being a listed company had failed to comply with Clause 36 of the equity listing agreement.


Following arguments were made by the company:


a)      based on the oral advice of reputed senior counsels, and the proposed appeal President-Corporate Planning and Operations and Executive Vice-Chairperson of the company discussed the matter with the management team of the company to consider whether any disclosure was required to be made for the alleged Tax Demand;


b)      based on the advice of a reputed senior tax counsel came to an informed and diligent view that disclosure of the Assessment Order was not warranted, as it would not have a material impact on the Noticee. The alleged Tax Demand’s disclosure in isolation would in fact give an incorrect and incomplete picture to the investors and mislead the investors thereby creating a false market for the scrip. Such a disclosure would also therefore be against the spirit of the Listing Agreement as it would lead to an incomplete representation of the matter to the shareholders as it would be a disclosure of litigation without a material impact;


c)       all the matters which have a bearing under clause 36 of the equity listing agreement are discussed by the respective Head of the Departments with management team of the company, which depending upon the facts and circumstances takes legal/professional opinion and then decide on the future course of action;


d)      the guidance note issued by BSE specifically and consistently qualifies, at the start of the relevant paragraphs itself, that the disclosure requirements is restricted to those litigation/disputes which will have a material impact on the company;


e)      took the view that no disclosure of the Tax Demand was required as the same was not material;


f)       the company immediately acted upon the advice obtained by it and filed an appeal before the ITAT. The Hon’ble ITAT, granted an interim stay on recovery of the alleged demand on payment of a sum of INR 5 million, which is 1.2% (approximate) of the alleged tax demand. Upon the noticee filing a writ petition before the Hon’ble Delhi High Court, the Hon’ble Court was pleased to extend the stay of the demand. The Hon’ble Court granted the stay on the same terms as the ITAT and sought no further deposit or security for the same.

Following is the reasoning of the Adjudicating Officer for levying the penalty:


a)      under clause 36, the company has to promptly after the event inform the stock exchange of the developments with respect to any dispute in conciliation proceedings, litigation, assessment, adjudication or arbitration to which it is a party or the outcome of which can reasonably be expected to have a material impact on its present or future operations or its profitability or financials;


b)      it is very much clear that in case of litigation / dispute with a material impact, the disclosure is warranted on a prompt and immediate basis which may also include not only the details of the event but also the impact of the event as envisaged by the management of the company. The said disclosure is aimed at enabling the shareholders and the public to appraise the position of the company;


c)       the disputed amount of Rs. 4500 million in the tax demand is noted to be significant when compared with Rs. 3497 million of revenue of the company for the year ended March 31, 2014 as also the networth of Rs. 3650 million as on March 31, 2014 . The company has consistently posted a net loss for the past five years. The net loss in FY 2014 amounts to Rs.535 million.


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